Adjudicative Jurisdiction and the Market for Corporate Charters

Abstract:     
Both in the United States and in Europe, corporations are free to choose the applicable corporate law by incorporating in the jurisdiction of their choice. However, smaller firms face a number of obstacles in exercising that choice. One such obstacle concerns the law on adjudicative jurisdiction: In the United States as well as in the European Community, corporations are exposed to third-party suits in their state of incorporation even if they have no other ties to that state.

In this Article, I argue that while the relevant rule may not matter much in the United States, it probably imposes a considerable burden on corporations in Europe. Moreover, I show that there is no convincing justification for the relevant Community law rule. It does not promise to increase the combined gains reaped by contracting parties, nor can it be expected to achieve either a substantive increase in positive externalities or a significant reduction in negative externalities. Finally, it cannot even be justified persuasively on fairness grounds.

Keywords: regulatory competition, market for corporate charters, delaware, centros, inspire art, jurisdiction, adjudication

JEL Classifications: G30, H70, K12, K 22, K41, K33

Accepted Paper Series